Julie Jason: Raising financially literate children

Published 6:58 pm, Friday, February 8, 2013

How important is it to involve children in discussions about family finances and investments?

Without family involvement, where can children learn how to make sound financial decisions? Consider the choices they will need to make over their lifetimes: college loans, buying cars and homes, renting apartments, participating in a 401(k) at work, preparing for retirement in the face of a Social Security system that may not be there for them, possibly taking care of elderly parents at some point in the future and handling an inheritance. And, don't forget about keeping on top of tax law changes as they occur, such as the very recent American Taxpayer Relief Act.

Developing these skills is essential for all families, regardless of net worth. There are perhaps even more difficult lessons to be learned in families with complex financial structures due to interests in family businesses, trust funds, unique or substantial assets, and relationships with family advisers, such as attorneys, accountants, business managers, trustees, and investment counsel.

With higher wealth also comes the need to develop social responsibility. That is a concern cited in the 2012 U.S. Trust Insights on Wealth and Worth Survey of individuals with at least $3 million in investable assets (not including the value of their primary residence), conducted by Phoenix Marketing International in March of 2012. U.S. Trust is part of the wealth and investment management unit of Bank of America.

The survey studied three generations, the pre-Baby Boom generation (born before 1946), the Baby Boomers (born between 1946 and 1964) and the post-Boomers (born after 1964).

Sixty percent of the youngest group believed they had a responsibility to share wealth with the less fortunate. A large majority (73 percent) of Baby Boomer respondents said they had a responsibility to create or pass on a tradition of philanthropy. And about half of Boomers and pre-Boomers said they had a responsibility to create or protect jobs for others.

Mary Wall of U.S. Trust pointed out that without proper help and education, problems can arise. Children can expect to live a certain lifestyle but not be able to pay for it themselves as adults. They turn to their parents to money when they run out.

It's not only children who may need education or assistance, said Wall. Spouses may simply not be interested, leaving open the risk of being the sole decision-maker later in life. Even CEOs may not know how much they can afford to spend in retirement, said Wall.

One reason children may not be prepared to make good financial decisions could be lack of communication with their parents. The survey found that only 37 percent of parents have fully disclosed their wealth to their children, while 51 percent have disclosed only a little about their financial status, according to the survey. In my experience, the question of whether disclosure is a positive or negative influence depends on family dynamics.

Thirty-seven percent of parents strongly agreed their children would benefit from discussions with a financial professional and 44 percent would be willing to introduce their children to a financial adviser. Again, in my personal experience, there are benefits and drawbacks to involving children. What's best for one family may not work for another.

Planning for the care of parents or other aging relatives, is another matter. Not enough families are doing what they should. Neither are they planning sufficiently for their own long-term needs. There are challenges to associated with aging, and planning calls for an understanding of diverse options for living arrangements, healthcare, financial planning and estate planning, noted Wall.

Some financial institutions are alert to meeting the educational needs of families. For example, U.S. Trust's Financial Empowerment program focuses on young adults in their 20s and 30s. No matter how you look at it, developing a family educational program on your own or with the help of advisers can only improve financial decision making. After all, life is complicated and it seems to be getting more so as time goes on.

One final point. If you would like a resource to help uncomplicate the new tax changes, let me offer you US Trust Tax Alert 2013-01, "Fiscal Cliff Deal Brings Permanency to Transfer Tax Laws," and Alert 2013-02 "2013 Income Taxes-What's Old is New Again." Email me at readers@juliejason.com for a copy.

Julie Jason, JD, LLM, award-winning author of "The AARP Retirement Survival Guide: How to Make Smart Financial Decisions in Good Times and Bad," and "Managing Retirement Wealth: An Expert Guide to Personal Portfolio Management in Good Times and Bad," is principal of Jackson, Grant Investment Advisers, Inc. of Stamford. Please e-mail her with questions at readers@juliejason.com or write to her c/o The Advocate, 9A Riverbend Drive South, Box 4910, Stamford, CT 06907. Copyright 2013 Julie Jason.